[mnehring]

So, here are a couple of arguments for:

1. I have a relative who is an MD. He was recruited cross-country at great expense. (Average cost to recruit an MD can be about $250K). So, if his comp was $200K/year and it cost $250K to recruit, a neighboring practice could monitor for new incoming docs, and make an offer of $220K/year in salary to the newly hired doc. If that happened, it would be in the best interest of the doc to switch jobs, but the original practice would be out $250K in recruitment costs.

2. In the case of an acqui-hire, the team is often the special sauce. You embed a bit of non-compete in the form of stock options that vest on a particular schedule, but it may be tricky to structure the deal in an attractive way without a non-compete and non-poach agreement.

3. Trade secrets are often hard to cover in NDA's. Your trade secrets may become embedded in the employee's mind in a manner that they cannot extricate. So, if your employee receives training that includes your trade secrets, those trade secrets will be implicitly used at the next job.

So, I think the argument basically boils down to there being a vast upfront cost to the employer for getting a new employee. If the employee switches to another company, the value of that upfront cost transfers to the new company with no compensation to the old company. It seems a new, more pernicious workaround to non-competes is where employers are charging their employees for training if they leave early. That seems even more hostile than a non-compete.

(As a side note, I think non-competes can be quite damaging. In the case of the MD relative, he was fired, essentially without cause, and his non-compete forced him to be unemployed for a year before he was finally able to convince the former employer to waive the non-compete. So, there should be very hard parameters around non-competes. One thing I think should be mandatory is a written buyout amount for any non-compete that has some basis in reality. For example, if my MD relative was recruited at a cost of $250K with a 2-year non-compete, then he could buy himself out at $250K, minus about $20K for each month of service he completed. Obviously, I haven't fleshed this idea out all the way.)

[wpietri]

I think those are all reasons a company might want it. But asking the government to force people to not work requires reasons why it's good for society, not just the company.

In the first case, you're talking about a company that wants to pay below-market salaries. Why should that be the employee's problem?

In the second, there's a case for carrots to make the acquired team stay, like the stock options you mention. But from a societal perspective, why should the company be able to use the courts as a stick if the carrots turn out to be insufficient?

In the third, I again get why companies want to treat employees like property. But I don't see any societal argument for that other than "rich company wants things".

[golemotron]

> But asking the government to force people to not work requires reasons why it's good for society, not just the company.

Nobody is forced not to work. That's pure hyperbole.

[wpietri]

Sorry, I thought it was obvious from context that I was talking about forcing people not to work at particular jobs. Which is what a noncompete is. You say you won't do X, and if you do X they ask the government to force you to stop doing X. If you refuse to comply long enough, men with guns will come and drag you away (contempt of court, and if you keep going, resisting arrest). So yeah, force. "Come and see the violence inherent in the system" and all that.

[lolinder]

1. If the doc is worth $220K, why couldn't the practice that hired him match the offer to save themselves the $250K they spent hiring him? This feels like exactly the kind of wage suppression that the FTC is arguing against.

2. Workers are not serfs to be bought and sold. If the acquiring company wants the talent, then they should structure the deal in a way that makes the talent want to stay, not use legal handcuffs to force them to.

3. I can see this as an argument for noncompetes being legal in some very limited cases, but most jobs don't need this. Others have suggested requiring garden leave in lieu of a noncompete, and in the few roles where this applies I suspect that would work out fine.

[skue]

You’re focusing on the specific numbers in the example, but missing the point. Imagine the salary difference is larger.

Basically, you have one company that has already paid $250K recruiting the doc and another company that paid close to $0. So if it comes to a bidding war over salary, the former company will always be at a financial disadvantage. And budgets always have limits.

[lolinder]

No, I'm not focusing on numbers. In fact, if I focus on the numbers they seem suspect: $250k is the cost to recruit, not the relocation costs[0]. A good chunk of that (upwards of $220K) is going to occur even with a local recruitment, which makes the disadvantage of the initial recruiter much smaller.

Further, as others have mentioned, there are other ways to contractually recoup relocation costs without a non-compete. A "you must pay back your relocation costs if you leave within a year" clause is far more justifiable than a "you can't work as a physician within 30 miles for at least 1 year if you ever leave us ever" clause.

(The same type of payback clause could apply if you did something drastic like pay off their entire student loans in one lump sum, though I am assuming that in most cases practices don't do that.)

All that said, my point had nothing to do with the numbers and everything to do with the principles: non-compete clauses are an extremely blunt instrument and are inappropriate in most cases. Firms should be required to come up with more limited contracts that accomplish their stated goals and nothing more, rather than throwing in something that is so damaging to the worker because it's easier for their lawyers.

[0] https://healthrecruitlink.com/blog/what-will-it-cost-to-recr...

[danhon]

In your first case, I'm pretty sure I've seen contracts that require the repayment of e.g. relocation costs if the employee leaves within x time period.

[madcaptenor]

I was recruited with paid relocation at my current job, and I would have had to repay relocation costs if I left within a year.

[sagarm]

Often a signing bonus also needs to be repaid (pro-rated).

[p_j_w]

> In the case of the MD relative, he was fired, essentially without cause, and his non-compete forced him to be unemployed for a year before he was finally able to convince the former employer to waive the non-compete.

It seems like an easy and obvious solution that the non-compete is automatically null and void if the employee is let go for any reason.

[wpietri]

Unfortunately, that also has easy workarounds, like making the employee's life hell until they quit. So you'd also need to solve for constructive dismissal: https://en.wikipedia.org/wiki/Constructive_dismissal

[gen220]

1. I think the end-game here is salary-parity, no? If Practice A learns that Practice B is taking their employees for a marginal salary difference, that forces Practice A to improve their compensation package.

But I don't think I fully understand this example. Why does it cost $250k to hire an MD? Why does Practice B not need to pay this cost, is it because they can skip the vetting process since A has already performed it?

2. If it's an acui-hire, the only way it can be successful (in real terms, not just fake "retention" terms) is if the acquired team is consenting to the acquisition and partnership. If the acquirer can't create a deal (involving stock options, work lifestyle guarantees, whatever) that's successful in the eyes of their prospective future employees, non-competes and non-poaches simply delay the inevitable. This is to the detriment of "we the people", because we want good people to be productively working on important things.

In my not incredibly informed opinion, NCs for acquihires smell lazy and inefficient, because they optimize for the wrong metrics (employee retention vs value creation + satisfaction). If there's uncertainty about the long-term success of the merger, it can be factored into the acquisition price.

To me, this implies that outlawing NCs would lead to fewer acquihires, on the margin. This seems like it would probably be a good thing.

3. I think there's some "basement" of trade secrets that we just need to accept are going to spread around. As a company, you have to understand that this bottom 20% of ideas are going to osmosis their way out with every departing employee, and there's nothing you can do about it other than work to retain employees and innovate new ideas.

Similarly to the acquihire issue, NCs simply delay the inevitable here, and don't seem to provide much benefit "we the people" (or protection to "we the entrepreneurs").

[dhx]

1. There's two costs being confused here. The impact of a doctor burning out or otherwise retiring and no longer using their qualifications, requiring the training of a junior doctor with required specialisations at a potential cost of USD$250k-$1M[1] and many years of waiting. And the much less significant impact of a doctor using their qualifications to find an equivalent job with a different employer. In the later example, it's a fairly standard professional recruitment process and cost.

2. Stock options are a risky gamble for employees and employers alike. Neither party can rely upon stock options too heavily as a retention tool because no one knows what the stock options would be worth 3 years in the future. If it's really essential to keep employees on for numerous years then guaranteed salary increases would be a better way to ensure employees are adequately compensated for the detriment to their career of staying in the same organisation doing the same work for a long period of time. And of course, proactively ensuring employee salaries are _always_ in the top decile of industry/specialisation salaries is needed too because it is not uncommon for some labour rates to move +10% in a single month. Many employers with a high NIPE/PPE[2] could easily pay higher salaries if they desired to keep employees for longer periods of time.

3. Aren't patents are meant to protect such R&D investments? Employers benefit from hiring from each other creating a mixture of technical knowledge and culture that is gained from employees having worked in different roles and projects elsewhere. Thus I struggle to comprehend why employee movement would be viewed as a net negative overall that justifies non-compete agreements.

[1] https://www.ama-assn.org/practice-management/physician-healt...

[2] https://tipalti.com/profit-per-employee/

[neycoda]

> So, if your employee receives training that includes your trade secrets, those trade secrets will be implicitly used at the next job.

That's not a compelling argument for NCCs. It's an argument stifling competition, which should not be what NCCs are used for.

Every company takes a risk hiring someone that may leave with field expertise specifics to the company. Them using that expertise elsewhere makes the market healthier and more robust because it increases competition.

It's conceivable that NCCs are more anti-competitive than protective of the company's trade secrets, at least that's how it appears they're being effectively used nowadays.